Amazon is a top choice for investors seeking exposure to the artificial intelligence (AI) sector. The company’s e-commerce business and cloud computing platform, Amazon Web Services (AWS), are well-positioned to benefit from the AI revolution. Amazon’s e-commerce business is larger than its next 10 competitors combined.
In the third quarter of 2023, sales grew by 9% year over year in North America and 12% internationally, despite concerns about consumer spending. AI has several applications in e-commerce, such as personalizing product recommendations and targeting advertisements more effectively. AWS is the market leader in cloud services and the fastest-growing part of Amazon’s business.
In the latest quarter, AWS revenue grew 19% year over year and posted a 38% operating margin, compared to about 6% for North American e-commerce. The cloud computing market is expected to triple by 2032 from 2024 levels, with AI and machine learning playing a significant role in this growth.
Amazon’s leadership in AI applications
AWS offers various AI services for customers, including the Amazon Q customizable AI assistant for businesses, Amazon Transcribe speech-to-text feature, and the AI-powered Amazon Fraud Detector. The company recently announced a partnership with venture capital firm General Catalyst to develop AI tools for the healthcare industry. Under CEO Andy Jassy’s leadership, Amazon is focusing on efficiency and profitability.
In the latest quarter, overall revenue grew 11% year over year, while earnings per share grew by 52% and free cash flow more than doubled. The combination of growing revenue, especially in AWS, and management’s focus on profitability could keep EPS growth elevated for years to come. Although Amazon trades at about 37 times forward earnings, its rapidly expanding profitability and significant growth opportunities make it an attractive investment.
Among the Magnificent Seven stocks, Amazon is one of the cheapest on a P/E basis and has seen the smallest expansion of its price-to-sales ratio from five years ago. Investing in Amazon leverages the strength of its core e-commerce operations and the rapid growth and profitability of AWS, making it a compelling choice for those looking to capitalize on the AI revolution.